Young Entrepreneurs: Not the Cure for What Ails the Economy (Opinion)

Interest is high in supporting youth entrepreneurship and often seen as a way to help create jobs and turn the economy. But a closer look at the issues shows that these notions may be little more than wishful thinking.

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Interest in entrepreneurship among young people is high these
days. The Ewing Marion Kauffman Foundation tells us that those
under 35 are “even more entrepreneurial than prior evidence may
have predicted.” A recent survey by Young Invincibles, Lake Research
Partners and Bellwether Research reveals, the majority (54
percent) of 18-to-34-year-olds would like to or have already
started a company.

Pundits and policymakers have cheered this finding. "This
poll reveals a generation that is
enthusiastic about entrepreneurship, and that is good news for
the U.S.," said Carl Schramm, former president of the Kauffman
Foundation.

Seeing this trend as one solution to America’s economic malaise,
some in Congress have seized on it to call for more support for
young entrepreneurs. For instance, U.S. Rep. Cedric Richmond (D.,
La.) has proposed the creation of an Office of Youth
Entrepreneurship at the Small Business Administration.

But before proposing new policies to support youth
entrepreneurship, our elected officials should examine the issue
a little more carefully. A high level of interest in
entrepreneurship among young people isn’t necessarily something
to cheer. People in their 20s often become more interested in
starting businesses when the economy is doing poorly and they
cannot easily get jobs.

Consider the following: In an annual survey by UCLA’s Cooperative Institutional Research
Program between 1976 and 2011, the percentage of
college freshmen who report that it is important to “become
successful in a business of my own” correlates about 0.7 with
the Misery Index, an economic measure that
combines the U.S. unemployment rate and the inflation rate.
That strong correlation means that when the economy is weak,
more college freshmen aspire to being entrepreneurs, and when
the economy is strong, fewer do. Thus, what a high level of
interest in entrepreneurship among young people really tells
us is that the economy is bad.

Moreover, policymakers also need to be careful about placing too
much weight on what people say rather than what they do. In the
survey by Young Invincibles, a health-care advocacy organization
for young adults, only 8 percent of the respondents actually
owned businesses, while 46 percent said they planned to have one.
Obviously, it’s easy to say you plan to have a business, but a
lot harder to actually start one. The figure that really matters
for policymakers is the number of young people who already have
started businesses.

Unfortunately, it turns out that young people aren’t very likely
to be running their own companies. While 20-something
entrepreneurs receive a lot of media attention, data show they
are actually much less likely be in business for themselves than
older people. According to the U.S. Bureau of Labor Statistics,
people 65 to 69 are 25 times as likely to run an incorporated
business of their own as people 20 to 24.

Policymakers want to believe we are seeing a spurt in youth
entrepreneurship that will solve our economic problems. Not only
would this be an easy solution to tough problems, but young
entrepreneurs also are sexy and exciting to boot. Our elected
officials, however, should take a closer look at the numbers.
They won’t design the right entrepreneurship policies if they
don’t go beyond facile answers to see what’s really happening in
the world of entrepreneurship and small business.